Bank stocks fell Thursday, dragged down in part by disclosures from U.S. Bancorp and Capital One Financial Corp. that they expect to incur more loan losses.
The KBW Bank Index fell 8.96%, its third day of declines this week.
U.S. Bancorp's chief executive Richard Davis told investors at the Goldman Sachs Group Inc. Financial Services Conference that the Minneapolis company would report about $1.2 billion in credit costs for the fourth quarter, roughly equal to its third-quarter net chargeoffs of $1.25 billion. Its stock fell 10.2% Thursday.
Capital One's chairman and CEO Richard Fairbank said at the same conference that the McLean, Va., company would probably incur substantial loan-loss provisions in future quarters. Its stock fell 13.2%.
"Neither of these reports [is] surprising, and investors took an opportunity to sell stock, knowing there will be a lot more bad news coming," Jeff Davis, a bank analyst and principal at Wolf River Capital LLC, said in an interview Thursday. "The question is, how much of this is now baked in" the current stock prices and how much further will the sector decline in subsequent trading, he said.
Wells Fargo & Co. fell 11.3% after two analysts cut estimates for the San Francisco company.
Ladenburg Thalmann analyst Richard Bove said in a research note Thursday that, though Wells "continues to be the preeminent bank in this country at the moment, with the best record," the company's expected $40 billion fourth-quarter writeoff related to its pending purchase of Wachovia Corp. prompted him to cut his estimates on the stock for 2008, 2009, and 2010. Wachovia fell 11.6% Thursday.
Moreover, Wells' CEO, John G. Stumpf, on Wednesday told investors at the Goldman conference that the company anticipates absorbing about $60 billion of losses in all on Wachovia's home-loan portfolio, including $36 billion on its option adjustable-rate mortgages.
A Dow Jones report Thursday said that Citigroup Inc. had agreed to repurchase roughly $7 billion of auction-rate securities and that UBS AG would buy back $22.7 billion of such securities as part of a settlement completed Thursday with the Securities and Exchange Commission. Citi fell 8.8%, and UBS 4.2%.
Other decliners Thursday included PNC Financial Services Group Inc., off 11.5%; State Street Corp, 7.2%; and UCBH Holdings Inc., 9.7%.
The broader markets also fell Thursday. The Dow Jones industrial average declined 2.24%, and the Standard & Poor's 500 index 2.85%.
The Labor Department said Thursday that initial unemployment claims for the week that ended Dec. 6 rose to 573,000, from 515,000 the week before, much higher than the 525,000 estimate that economists had expected.
Congress may not give the Big Three U.S. automakers a $14 billion emergency loan after all because Senate Republicans remain adamantly opposed to a bailout unless unionized workers at the three companies accept salaries more in line with those at foreign companies, like Nissan, Toyota, and Honda, that have U.S. assembly plants.